I live in Los Angeles and I'm lucky enough to write about the thing I love most: movies. I'm a graduate of Vassar College and Northwestern University and for 15 years I worked at Forbes mostly covering the entertainment industry. Although I've moved into the world of corporate journalism, I still contribute blog posts here.

Buying DirecTV Could Make AT&T A Video Powerhouse

On Sunday, AT&TAT&T officially announced that it is buying DirecTV in a stock and cash transaction for $95 per share. The final price will be $48.5 billion.

That’s $3.5 billion more than ComcastComcast is spending to acquire Time Warner CableTime Warner Cable and the two deals and intrinsically linked. Both show that the companies that bring video into our homes believe they need to be bigger in order to compete in the rapidly changing television landscape.

Although the real number of people watching TV over the Internet is relatively small today (on average we watch only 7.5 hour of online TV per month according to Nielsen), everyone in the media industry knows that this is the direction we’re headed. We will watch more video online through our tablets and our mobile phones in the coming years. It’s a huge change and one that big corporations are not sure how to take advantage of.

AT&T is attacking the problem by buying DirecTV. Yes, AT&T offers a video service. But U-Verse has only 5.7 million customers. That doesn’t give AT&T the video presence it needs to be a real player in the space.

DirecTV, on the other hand, has 20 million subscribers and long-standing relationships with the biggest content providers. The merger gives AT&T instant video bona fides. It also gives the phone company access to some amazing sports deals, an increasingly important part of any video company’s line up as sports programming is one of the few things that can get people to actually tune in to a live broadcast (which advertisers love).

And of course AT&T has 70 million phone subscribers. The company can now offer those subscribers the coveted triple play (video, Internet and phone service) and free up broadband space for Internet only by moving video services to satellite.

The combined company will also be well-placed to start moving video to mobile phones. No one is sure how the future will play out but AT&T can slowly make deals with content providers to offer their videos on mobile devices in new ways.

The combined company could offer real competition to Comcast after it mergers with Time WarnerTime Warner Cable. The new cable company will have 30 million customers across the country. Comcast is arguing to federal regulators that the combined company will not offer any kind of competitive threat because the two never competed regionally in the first place and that video from satellite and FIOS offer serious competition.

But the truth is services like U-Verse and DirecTV alone have not offered very compelling competition to cable. In most cases, cable is still the easiest way to get all of the services you need into your house with one (often cheaper) bill. Using DirecTV for video in the past has meant you are still probably paying a cable company for Internet access and then another company for your phone service.

By consolidating those services into one company – AT&T could conceivably offer Comcast real competition, to the potential benefit of consumers.

Both companies will undoubtedly make that case in Washington since both deals need federal approval before they can go through.

Whether regulators buy these arguments is another story. Many consumer groups are concerned about the growing power of media companies represented by these mergers. AT&T and Comcast will now have unprecedented power to make deals with companies like HBO, Disney and even NetflixNetflix that could make it harder for new, potentially cheaper, video services to break through. That could give the two companies unlimited power to raise rates on consumers faced with few choices to go elsewhere.

A spoiler here could be Dish’s Charlie Ergen. The satellite company CEO made a smart deal with Disney earlier this year that gives him the right to offer Disney channels online to people who don’t have Dish’s satellite service. Right now, to access Disney’s “Watch” apps you need to authenticate your cable or satellite account.

If Ergen does in fact start offering this kind of over-the-top service, it would be incredibly disruptive and potentially speed a kind of online a la carte video offering that companies like Comcast would rather not see.

We have months of hearings in front of us to see how this all plays out.

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